Federal Reserve officials are pinning their interest
rate hikes on recent job market strength, with the unemployment
rate at a 17-year low of 4.1%.

However, signs of weakness in the economy remain,
including an inflation rate that continues to undershoot the
Fed's target.

Wage growth has remained meager, so the Fed's ongoing
monetary tightening signals a lack of desire to see a further
pick up.

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For Federal Reserve officials, the whole point of keeping
interest rates low for a prolonged period was to get the US
economy on a solid footing where unemployment was low and wages
could begin to climb.

So with inflation still chronically below the Fed's target and
wage growth continuing to disappoint, coming in at a tepid 2.5%
annual reading at last brush, why are central bank officials so
keen to continue raising interest rates,
as they are widely expected to do this week?

One key reason,
albeit a misguided one, is the sense that Fed officials would
be out of tools if another downturn were to hit the economy. That
means the Fed should get rates up now in order to be able to cut
them later - even if it risks slowing economic activity in the
short run.

Another potential argument is that the Fed needs to act
preemptively, because inflation is likely to be right around the
corner with the jobless rate this low. Except that theory has
proven wrong time and again, year after year.

"When the Fed says they are just about to the 2% target or
that they are afraid of rapid inflation, many look at the
forecasts from each of the last 32 quarters and say, 'Didn't you
say that five, four, three, two years, even one year ago, too?'"
said Austan Goolsbee, President Barack Obama's former top
economic adviser and a University of Chicago
professor.

Maybe something else entirely is going on. Perhaps Fed officials
aren't so keen to see wages rise after all. That
seems to be the interpretation of Paul Mortimer-Lee, economist at
BNP Paribas.

"Despite the strength in the labor market, the
November employment report highlighted that faster wage growth is
struggling to come through,"
he wrote in a research note.

"With the Fed signaling a desire to raise rates in
December, and in our opinion focusing more on economic activity
than inflation, we think the softness in wages is unlikely to
shift the Fed off its current course."

For an economy that garners more than two-thirds of its
activity from consumer spending, stifling wage growth could be
actively detrimental to a longer-term recovery, including by
forcing consumers to rely increasingly
on dangerous loads of debt.